Russian Banker’s Money-Laundering Case May Sour U.K. Ties

The London headquarters of the European Bank for Reconstruction and Development (EBRD), in London. Kotova, a former World Bank and International Monetary Fund official and senior manager at Russian state banks VTB Group and Vnesheconombank, worked at the EBRD until December 2010. Photographer: Suzanne Plunkett/Bloomberg

Aug. 17 (Bloomberg) -- Russia and the U.K. risk further
souring ties as authorities are set to clash over potential
money-laundering and bribery charges against a former Russian
official at a London-based international lender.

Elena Kotova, 57, Russia’s former top representative at the
European Bank for Reconstruction and Development, is sought by
the U.K. for allegedly conducting a money-laundering operation
in both Britain and the U.S. over several years, according to a
person familiar with the British investigation, who declined to
be identified because the probe is under way. Kotova, who denies
any wrongdoing, says she’s unable to leave Russia because of a
criminal inquiry by local authorities.

Relations worsened to a post-Cold War low after the 2006
assassination of dissident ex-KGB agent Alexander Litvinenko in
London. In the Kotova case, the U.K. refused entry to Russian
detectives for more than a year. The Russian investigation may
end up shielding Kotova rather than leading to a trial, said
Mark Galeotti, a professor at New York University.

“Kotova has some kind of protection, in part because she
was appointed,” Galeotti, who studies transnational crime and
Russian foreign affairs, said in a phone interview. “The
Russian government had a direct hand in getting her that job,
which is why it’s embarrassing. On the Russian side, I’m picking
up a sense of tension. There are people who are carrying out a
serious and diligent investigation and there are people who are
instead thinking of the wider political context.”

Potential Charges

The City of London Police said Aug. 15 that it is working
with the Crown Prosecution Service, which is responsible for
filing charges. Russia is preparing to send detectives to the
U.K. to interview current and ex-managers at the EBRD, according
to the Interior Ministry in Moscow.

Kotova says she faces potential U.K. charges along with
five other Russians who worked with her at the EBRD. Two of the
five were questioned in the U.K. on several occasions in 2011,
two others had already left the bank and a fifth individual plus
Kotova returned to Russia in January 2011 just before criminal
proceedings started.

“It’s two different matters to be involved in activities
outside the EBRD and to be involved in money-laundering,”
Kotova said in an interview in Moscow on Aug 13., adding that
she had a real estate business in the U.S. and was administering
a VTB project in the U.K. during her 2005-2010 job at the
London-based bank. “I am absolutely innocent.”

‘Major Problem’

The Litvinenko murder remains a “major problem” between
the U.K. and Russia, Prime Minister David Cameron said on the
day he met President Vladimir Putin at the London Olympics this
month. Strains between the two countries over the case have
“not thawed and will not thaw,” he said.

Russia has refused requests from Britain for the
extradition of the chief suspect, ex-KGB bodyguard Andrei
Lugovoi, and complained of receiving no assistance from the U.K.
in its own investigation. Lugovoi denies any wrongdoing.

Kotova, a former World Bank and International Monetary Fund
official and senior manager at Russian state banks VTB Group and
Vnesheconombank, worked at the EBRD until December 2010. She and
three other Russians at the bank had their diplomatic immunity
revoked a month later at the request of both the U.K. and
Russian governments. A separate criminal case for bribery was
started in February 2011 against Kotova in Moscow.

“The British don’t take the Russian investigation
seriously, and maintain ‘whatever they are doing, we will
continue doing what we are doing’,” Kotova said in the
interview earlier this month.

$1 million

Russia is investigating her for allegedly soliciting a $1
million bribe to secure approval for a $100 million EBRD loan to
a company operating in Russia.

The London-based EBRD, set up by Western governments to
help former communist countries make the transition to
capitalism, started an internal investigation into current and
former Russian EBRD staff in July 2010.

While the Russian government initially stood behind Kotova,
saying in a Dec. 9, 2010 order that it had relieved the director
of her position “at her own request,” the Economy Ministry
said Jan. 18 of last year that she had been fired amid a
criminal probe into wrongdoing by her and three other Russian
officials at the lender.

Still, there are doubts about whether she would face
charges in Russia, according to Alexei Panin, a deputy director
at the Moscow-based Center for Political Information.

‘Tough Manner’

“There is very little satisfaction in Russia at the
British accusations against Kotova, and so it’s quite clear that
at a political level, Russia is countering them in a tough
manner,” Panin said by phone yesterday.

The City of London Police said that suspects remain
outstanding abroad and that it was continuing to work closely
with the EBRD, Crown Prosecution Service and Russian
authorities.

Russia protested in 2007 after a U.S. court convicted a
former Russian diplomat to the United Nations on charges of
money-laundering, accusing the Bush administration of using the
investigation to pressure it. The ex-envoy, Vladimir Kuznetsov,
who was accused of laundering funds obtained by another Russian
UN diplomat, was allowed to return to Russia in 2008 to serve
the remainder of his four-year sentence.

Kotova said the EBRD targeted her to reduce Russian
influence at the bank.

‘Internal Conflict’

“My situation resulted from a deep internal conflict
between our office and the EBRD president and top management,”
she said. “Our office just carried out our work, which involved
lobbying in the interests of clients from our country.”

In 2009, as the global financial crisis engulfed the former
Soviet satellites, the EBRD increased lending to European Union
member states such as Hungary, Poland and Bulgaria as a credit
shortage threatened to exacerbate their economic difficulties.
Kotova said she had argued against the decision.

The EBRD says Russia’s share of bank lending stood at 40
percent in the first six months of this year, close to the level
in 2007. Total lending to Russia for the full-year should be
close to 2011’s approximately 3 billion euros ($3.7 billion), up
from about 2.3 billion euros in 2007, it said.

“Mrs. Kotova is obviously facing very serious
allegations,” the EBRD said in a statement. “They are the
subject of inquiries in both the United Kingdom and Russia and
we would hope that she would cooperate fully with those
inquiries in order to establish the truth.”

Property Assets

Kotova, who owns an apartment in downtown Moscow and
another in London’s upscale Mayfair district as well as houses
in Brooklyn in New York City and in Washington, says she took
out mortgages to buy her Washington and London homes.

“In Moscow, where I worked from 1998-2005, I earned a lot
of money,” she said. “I had six-digit salaries and six-digit
bonuses and I had private businesses on the side.”

U.K. police refused Kotova’s December 2011 request to drop
the case against her because of the parallel Russian inquiry,
she says. In their response, the City of London Police said they
had sent 40 pages of case material and 100 questions for Kotova
to Russian investigators, according to the ex-EBRD official. The
Russian side declined to provide assistance to the U.K. inquiry,
said Kotova and her Moscow-based lawyer, Sergei Mirzoyev.

‘Safe Haven’

“The British Isles remain a safe haven for many people
guilty of serious crimes, partly linked to laundering of stolen
funds,” Deputy Prosecutor General Alexander Zvyagintsev said in
an Aug. 7 interview with the Interfax news service posted on the
website of the Prosecutor General’s office. “For a long time
already, many Russian judicial requests are not being fulfilled
in the U.K.”

In September of last year, Russia urged Britain to
extradite 43 of its citizens. It has unsuccessfully sought the
extradition of Chechen separatist leader Akhmed Zakayev, one-time billionaire Boris Berezovsky and other businessmen accused
of fraud, some of whom have received political asylum. The
latest extradition case involves Bank of Moscow’s former Chief
Executive Officer Andrei Borodin.

“There is bad blood,” said Galeotti, who said he doesn’t
believe there is “any political agenda” on the British side in
the EBRD case. “This is just a straightforward investigation.”